China's April FX reserves rise, beating market expectations

China's foreign exchange reserves rose in April for a third straight month, beating market expectations, as capital controls and a pause in the dollar's rally helped staunch capital outflows.

The April rise is reassuring news for policymakers after the yuan steadied as U.S. President Donald Trump backed away from labeling China a currency manipulator, saying the dollar was "getting too strong" and would eventually hurt the U.S. economy.

Reserves rose $21 billion in April to $3.03 trillion, compared with an increase of $3.96 billion in March to $3.009 trillion.

Carlos Barria | Reuters

President Donald Trump (L) and China's President Xi Jinping walk along the front patio of the Mar-a-Lago estate after a bilateral meeting in Palm Beach, Florida, April 7, 2017.

The State Administration of Foreign Exchange said in a statement that the reserves rose due to basically balanced foreign exchange supply and demand and the appreciation of currencies against the dollar.

Looking ahead, the yuan would remain basically stable with cross-border capital flows becoming more balanced, which will further stabilize foreign exchange reserves, the regulator added.

Economists polled by Reuters had expected foreign exchange reserves to rise by $11.0 billion to $3.02 trillion in April. China has tightened rules on moving capital outside the country in recent months as it seeks to support the yuan and stem a slide in its foreign exchange reserves.

It burned through nearly $320 billion of reserves last year but the yuan still fell about 6.5 percent against the dollar, its biggest annual drop since 1994.

The yuan's performance against the dollar has been steady in recent weeks after the dollar lost its upward momentum.

In March, China's central bank sold the smallest amount of foreign exchange since May 2016, supporting the government's assertions that capital flows were becoming more balanced.

Premier Li Keqiang said last month that market confidence in the yuan had significantly improved and the outside world had stable expectations for the yuan exchange rate.

The forex regulator said on Wednesday that China would improve macro-prudential management on cross-border flows to ward off potential risks and "optimise" diversification of foreign exchange reserves.

The Chinese currency is forecast to weaken to 7.07 against the dollar in a year, according to a Reuters poll of 60 foreign exchange strategists.

The U.S. Federal Reserve kept interest rates unchanged on Wednesday and downplayed weak first-quarter economic growth while emphasizing the strength of the labor market, a sign it was still on track for two more rate rises this year.

China's gold reserves rose to $75.02 billion at the end of April from $73.7 billion at end-March, data published on the People's Bank of China website also showed.